Global stocks end in green after US Fed signals low rates will stay

Global shares were higher on Monday, as investors interpreted comments from the head of the US Federal Reserve as signaling low interest rates were here to stay for some time.

France’s CAC 40 rose less than 0.1% in early trading to 6,684.18, while Germany’s DAX edged up 0.1% to 15,870.46. Britain’s FTSE 100 gained 0.3% to 7,148.01. US shares were set to drift higher with Dow futures up nearly 0.1% at 35,420.00. S&P 500 futures gained 0.1% to 4,508.75.

Japan’s benchmark Nikkei 225 edged up 0.5% to close at 27,789.29. Australia’s S&P/ASX 200 rose 0.2% to 7,504.50. South Korea’s Kospi gained 0.3% to 3,144.19. Hong Kong’s Hang Seng added 0.5% to 25,539.54, while the Shanghai Composite stood at 3,528.15, up 0.2%.

Regional investors are also looking ahead to data expected to be released Tuesday on China’s manufacturing sector.

The rally in Asia paralleled the rise that ended the previous week on Wall Street. The speech by Fed Chair Jerome Powell was key, as US stocks have set record after record this year, in large part because of the Fed’s massive efforts to prop up the economy and financial markets. The gains had been getting increasingly tentative as markets began to look toward a possible end of the Fed’s assistance.

Last week, Powell noted past mistakes where policy makers made premature moves in the face of seemingly high inflation. He made clear a slowing of the Fed’s bond purchases doesn’t mean a rise in short-term rates is imminent. That would require the job market and inflation to hurdle “substantially more stringent” tests.

“We have much ground to cover to reach maximum employment,” Powell said.

One problem Powell noted was the delta variant of the coronavirus, which remains a global concern. The delta variant is behind the recent surge in COVID-19 infections in Asia, where the vaccine rollout has been slower than parts of the US and Europe.

“With the spread of the delta variant still rife and the vaccination drive slow, Singapore being the exception, the path out of the pandemic is unpredictable, fraught with setbacks and periodic lock downs,” said Venkateswaran Lavanya at Mizuho Bank in Singapore.

The delta variant has already slowed some economic activity. In the US, a report on Friday showed that consumer spending in the country rose 0.3% in July from June, a sharp slowdown from the prior month’s 1.1% jump. That’s a big deal when consumer spending is the driving force of the US economy, and its growth slowed even though income growth for Americans accelerated to 1.1% last month.

In energy trading, benchmark US crude lost 68 cents to $68.06 a barrel. Brent crude, the international standard, fell 26 cents to $72.44 a barrel.

In currency trading, the US dollar inched up to 109.85 Japanese yen from 109.84 yen. The euro cost $1.1803, down from $1.1792.

 Gold steadied near a four-week high on Monday, consolidating gains after the US Federal Reserve chief Jerome Powell signalled interest rates will remain low for the foreseeable future.

While some investors view gold as a hedge against the higher inflation that could follow stimulus measures, lower interest rates also decrease the opportunity cost of holding non-yielding bullion.

Spot gold was steady at $1,816.51 per ounce by 1129 GMT, after earlier hitting its highest since Aug. 4 at $1,822.92. U.S. gold futures edged 0.1% lower to $1,818.10.

“Overall, (the) monetary policy background will remain accommodative and there are uncertainties around (the) COVID-19 Delta variant, Chinese slowdown concerns, geopolitical tensions,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

All those factors provided a bullish backdrop for gold prices, he said.

“Powell laid out a clear distinction between the tapering of bond purchases and an interest rate hike. Even though tapering might start this year, a rate hike is far away,” Barot added.

In a virtual speech at the Jackson Hole economic conference on Friday, Powell offered no signal on when the central bank plans to cut its asset purchases beyond saying it could be “this year”, and indicated it would remain cautious in any eventual decision to raise interest rates.

Powell’s dovish statement helped gold gain 1.4% on Friday, while pushing the dollar index to a two-week low.

Investor focus now shifts to the U.S. nonfarm payroll data for August on Friday, which could shed more light on the labour market recovery and influence the Fed’s tapering strategy.

“From a technical point of view gold remains in a positive environment,” said Carlo Alberto De Casa, market analyst at Kinesis.

“We have seen a rebound also on silver, but the technical picture remains anyway more fragile, as the grey metal is still underperforming gold.”